Fixable Error, New Insight, and Social Security
by Dale Coberly
Fixable Error
New Insight
and Social Security
(amended version)
When errors are honest, and people keep talking in good faith, they are usually fixable. One of the errors I will talk about here is mine. The new insight is entirely the result of the good faith and honesty of Eric Laursen who has written a book about Social Security called The People’s Pension.
In the transcript ( http://retirementrevised.com/money/qa-eric-laursen-on-the-peoples-pension ) of Mark Miller’s interview with Laursen about his book appears this statement regarding possible fixes for Social Security:
“A fallback would be to raise payroll taxes for everyone, but so slowly that it would have little impact – say, by 0.01 percent a year”
I knew this was wrong, and I thought I knew why: Lots of people get confused between 0.01 which is one percent of one, and 0.01 percent, which is one ten thousandth of whatever you are talking about. A tax increase of 0.01% on a 40,000 dollar per year income would be 4 dollars a year. This would not help Social Security. But it is marvelous that a tax increase of 0.05%, which is one half of one tenth of one percent, per year would solve the Social Security problem entirely. This is five times 0.01%, or about 20 dollars per year, per year, or about 40 cents per week, per year.
Laursen told me he had gotten the number from Monique Morrissey ( http://www.epi.org/page/-/old/briefingpapers/BriefingPaper287.pdf ).
” These projected longevity gains, if they materialize, could also be offset by a 0.01 percentage-point increase in the payroll tax per year from 2025 to 2084 (from 6.2% to 6.8% overall). Over this 60-year period, average wages are projected to nearly double in inflation-adjusted terms. “
So I read Morrissey’s paper to see where she had gotten the number. Morrissey is primarily arguing against increasing the retirement age, and she wishes to show that increases in life expectancy are not the drivers of the projected shortfall in SS:
” However, gains in life expectancy represent only a small part of the fiscal challenge facing Social Security. The increase in the normal retirement age from 65 to 67, currently underway, already offsets gains in life expectancy for workers born before 1960, and longevity gains for younger generations account for only a fifth of the projected Social Security shortfall. “
So the difficulty is not in the arithmetic, but in the fact that she is talking about only ONE cause of the projected shortfall, which by her reckoning is only one fifth of the problem.
That’s fine, but it can lead to confusion. As in fact it did for Laursen and me.
Morrissey’s essay is mostly written in opposition to raising the retirement age, and it is WELL WORTH READING.
She provided me with a new insight.
That said, I disagree with her conclusion.
Her conclusion is that raising the cap on income subject to the payroll tax, scrapping it entirely, is the answer to the Social Security projected shortfall. I think that such a solution has no chance whatsoever in this political climate. And I do not think it would be a reasonable solution for a program that is successful exactly because it is NOT WELFARE. Raising the cap would turn SS into welfare by “taxing the rich” for benefits they will not get.
Moreover the cost of fixing SS by raising the payroll tax under the current cap is so tiny… forty cents per week… that no one would even feel it. And it would preserve the fundamental nature of Social Security: the “tax” is paid for by the workers who will get the benefits.
Morrissey appears to think of Social Security as “social welfare”, in which the whole society… and that means the rich… pay for the needs of the needy.
But American workers don’t see themselves as needy; they don’t want welfare; and they very much like the idea that they “paid for it themselves.”
And the American “rich” are not going to pay for the workers retirement. They see themselves as having a hard enough time paying for welfare for the truly needy without being asked to foot the bill for every single worker’s expected twenty years in retirement.
But Morrissey provided an insight which I had missed.
I have been saying that the need for the payroll tax increase is because future workers are going to be living longer in retirement than past workers.
Morrissey shows that in some important ways this is not exactly true. Future workers will not, in general, live significantly longer than current retirees. The increases in longevity will be mostly among the rich.
She shows the previous increases in longevity have largely been paid for by other factors, including increases in population and increases in incomes. I’ll leave you to read her essay to learn about this. Essentially I will argue that those other factors have masked the “true” cost of Social Security, and it would be serious error to to try to make up for changes in them by changing the fundamental nature of Social Security from “the workers pay for it themselves,” to “social insurance,” or what we call “welfare.”
It is not that easy to correct demographic trends, or economic trends, or inequities in the earnings of the poor vs the rich. These are problems that should be addressed, but they should be addressed outside of Social Security. Social Security is insurance, designed to help people through bad times. It is a mistake to shoulder Social Security with the burden of correcting all the ills of society that may fall upon the poor.
But that brings me to my error. And why I am not going to “fix” it.
I came into the Social Security debate from a background that has nothing to do with politics or “social welfare.” This gives me a different “frame.” [note this is not Lakoff’s political framing, but more like framing a problem in physics so that it can be solved. Peter Peterson has framed the problem so it cannot be solved at all. Peterson has dedicated a billion dollars to making his framing the conventional wisdom, and I think Morrissey has accepted it without thinking too much about it.
Consider a universe in which, for the moment, there is no population growth, no increases in longevity, no economic growth, no inflation, no interest, no changes in longevity.
But in this universe people still work when they are adults and strong, and want to be able to retire at some point before they die. They will need to “save” for that retirement some of what they produce while they are working.
This leads to a Basic Retirement Equation:
years worked, times percent of earnings “saved,” equals years retired, times retirement income (as a percent of prior earnings).
So if you are going to work for forty years and expect to live ten years in retirement at 40% of your prior income, you would need to “save” ten percent of your income:
40 X 10% = 10 X 40%
It does not matter, in this universe, if you save this as gold in a box, or as a non-cash implicit agreement by which working adults pay for the needs of the elderly, or by a formal pay as you go “tax”.
In all cases you are deferring 10% of your present income so that you will have enough to live on when you get old. This can be done by hoarding “gold”, which is dangerous, or by implicit “honor your mother and your father” agreement between generations, or by an explicit government-managed (but not “government paid”) tax and benefit system.
Now imagine another universe in which nothing has changed except that you expect to live 20 years in retirement. The equation now becomes:
“40 years working, times 20% savings, equals 20 years in retirement, times 40% “replacement benefit.”
This may look like a lot of money to save, or be taxed, but it would be a perfectly reasonable solution to the problem of living for twenty years after you become too old to work, or want to work. The key here is you have to realize the 20% is “your money”. You saved it. And it will be you who spends it.
As long as the other members of the society agree that this is a reasonable way to apportion earnings between working years and retirement years, it is no problem. Especially if the workers agree that money not used by those who die earlier than the 20 year expectancy will be used to pay for the needs of those who live longer. This is not welfare. It’s insurance.
Now, in the real world, the fact has been that other factors including income growth and population growth… at least the population of workers in the Social Security program… have worked to reduce the needed “savings” or tax rate. [Also, for the past few hundred years or so, “interest” or “capital growth, including appreciation of stocks, has reduced the needed “savings” rate. But this has been accompanied by the risks of inflation and market losses, which is what Social Security was invented to provide insurance against.]
But these other factors are OUTSIDE of Social Security. And Social Security does not depend on them to work.
It may be that rising income inequality, reductions in birth rate, or other economic and demographic factors will affect the tax rate needed to provide a reasonable retirement “rate.” But the BASIC fact is that it is the ratio between working years and retirement years that determines “the cost of retirement.”
Social Security is designed explicitly to take care of the ups and downs in the economy, including demographics. If rates have to go up, or if benefits have to come down in response to hard times, so be it. That is the history of the human race: There are fat years and lean years.
Some people argue, in bad faith I think, that ups and downs in Social Security “return on investment” are a kind of generational crime. They prefer you don’t look at the ups and downs in return on investment in the private markets. Even that box of gold under the bed, or the ability of the working adults in a family to care for their own elderly relatives, or the ability of investors to realize a rate of return they need to fund their own retirement… will be subject to factors like demographics, wars, the state of the economy, inflation, market losses, and will result in greater or lower “returns on investment” from one generation to the next. But the enemies of Social Security want you to think that if SS does not make exactly the same return to each generation, some generation is being “robbed.”
As it happens we are looking at… according to the Trustees… a period of time where some of the factors that have held down the cost of Social Security in the past will not be as much of a help in the future as they have been in the past. These “anti-factors” include rising inequality of income, a falling birth rate, lower productivity gains.. a combination of factors that will require either a benefit cut of about 20% or a tax raise of about 4%, which can be phased in over about eighty years, at one half of one tenth of one percent at a time.
Cutting a benefit that is already at survival level by 20% is insane. Raising a tax 4% over about 80 years wouldn’t even be felt. [The 4% tax increase would occur while incomes are increasing more than 100%, so that, in round numbers, after eighty years your after tax income will have increased 96% instead of 100%… you are not going to notice the difference… unless of course you threw away your Social Security in order to “save” that 4%.]
But these factors are external to the basic mathematics of retirement, especially from the perspective of the individual. The basic relation is: {the number of years you work compared to the number of years you expect to be retired} determines {the ratio between tax rate and benefit rate}.
While it is true that relying on the “whole economy pays for everybody” could in principle produce the same result, on average, through general taxation and a “government pension.” This perspective leads to an understanding which is basically wrong, and which the politics of this country, and the psychology of both the workers and the “rich” is not ready to accept. We prefer an explicit relation between the money we “save” as individuals and the benefits we get as individuals. We prudently modify this principle enough to allow for an insurance factor whereby those who cannot save enough over a lifetime of work to pay for a decent retirement are helped out by the “excess” of those who were able to save “more than enough” in the protected savings plan we know as Social Security. But the principle is still essentially “you pay for what you get.”
Morrissey may be correct that only one fifth of the projected shortfall is “due to” rising life expectancies, but that is because those other factors that have previously reduced the cost due to rising life expectancies may no longer be able to do so.
We cannot easily change those factors, but going from there to propose a “solution” that destroys the fundamental nature of Social Security by changing it from “worker pays” to “the rich pay,” will in the first place not be accepted by those rich who have the political power in this country, and in the second place would deprive the workers of both the satisfaction and the political power of being able to say “I paid for it myself.”
If there were no alternative… if the extra revenue needed for a decent retirement were beyond the reach of the workers, then a welfare solution might be necessary… though this would be a bad way to arrange an economy over the long run. But since the cost of “fixing” Social Security, whatever the reason for the shortfall, amounts to only forty cents per week per year, it is far, far better that the workers pay for it themselves than to have them go to Mr. Richfellow and say, “Please, Sir, can I have some more?”
Meanwhile I will keep saying the need for the “tax” increase is because we are going to be living longer. I believe this is the more fundamental truth. And it’s certainly a lot easier to explain to people than all the complications Morrissey addresses in her essay. And it leads to the correct solution: the workers need to pay a little more for their own retirement because they will be living longer.
When you go to the store you do not go up to a well dressed stranger and say, “Sir, it looks like you have more money than I have. Please pay for my groceries.”
Social Security is you paying now while you have the money for the groceries you will need later when you may not have the money. That is a lot better for the country, and a lot safer for the workers, than teaching them to expect “the rich” to pay for the predictable costs of a large, and normal, part of their lives.
Eric Larsen will be on FDL’s Book Salon this Sat., May 12, at 5-7pm EST, to discuss his new book, “The People’s Pension: The Struggle to Defend Social Security Since Reagan.”
Larsen say, “Hosting will be Ellen Schultz, the Wall Street Journal’s outstanding reporter on pensions and retirement. That should make for a terrific and well informed (if I do say so!) discussion of 30 years of war on Social Security, the grassroots response, and the “real retirement crisis” that Social Security debate is keeping Washington from addressing.
Go to http://firedoglake.com/ and click on “Book Salon.” Hope to see you there!”
I have always asked the intergenerational equity people, what if it is not possible to leave our children better off? They insist on it as a necessity for fairness but there is nothing in this world that even guarantees it as a possibility.
Lord,
that’s true. But as far as the Trustees projections go, our children ARE going to be better off. It’s just that if they want to be “better off in Social Security” they are going to have to pay for it… just as we paid for it… at the staggering burden of forty cents per week, while their incomes are rising eight dollars per week and their life expectancy at age 65 will be about fifty percent longer than that of the generation who invented Social Security.
So, after years of insisting that everyone accept his view of Social Security because he knows best, coberly now admits that there are fundamental issues which has has misunderstood, and slaps “good faith” lipstick on the gaps in his understanding.
This would be all find and good, but coberly has often been an utter jackass in arguing for his own point of view. He vilifies those who disagree with him – does so again here with his reference to teh “bad faith” of others as opposed to his own “good faith”. He declares the superiority of his own knowledge – essentially declaring himself an authority so that his appeals to authority are appeals to his own view. This particular pose looks particularly funny, in light of today’s post. He has tried toargue that his reading of Social Security law and regulation makes him an authority on the politics of Social Security.
The Social Security debate is too important to be left to the sort of ego and nonsense that goes into coberly’s arguments, excluding any view that doesn’t agree with his own. We see it again today, when he is forced to admit that Morrissey’s understanding is superior to his own on a point of substance, and then rejects everything else she has to say because it doesn’t fit with his views.
kharris
So, after years of insisting that everyone accept his view of Social Security because he knows best, coberly now admits that there are fundamental issues which has has misunderstood, and slaps “good faith” lipstick on the gaps in his understanding.
This would be all fine and good, but coberly has often been an utter jackass in arguing for his own point of view. He vilifies those who disagree with him – does so again here with his reference to the “bad faith” of others as opposed to his own “good faith”. He declares the superiority of his own knowledge – essentially declaring himself an authority so that his appeals to authority are appeals to his own view. This particular pose looks particularly funny, in light of today’s post. He has tried to argue that his reading of Social Security law and regulation makes him an authority on the politics of Social Security. These are not “good faith” arguments. They are the behavior of a debating team bully, and not a very clever one.
The Social Security debate is too important to be left to the sort of ego and nonsense that goes into coberly’s arguments, excluding any view that doesn’t agree with his own. We see it again today, when he is forced to admit that Morrissey’s understanding is superior to his own on a point of substance, and then rejects everything else she has to say because it doesn’t fit with his views.
kharris
if you could read you would not embarrass yourself like this.
i argue that my view is fundamentally more correct than the more narrow view argued by Morrissey.
The good faith I cited was the good faith of Laursen in staying with the discussion of the “math error” long enough to see where it really came from. But you would know nothing of good faith.
The bad faith I referred to was the Petersonian argument that Social Security was a bad deal because early recipients got a higher “return on their investment” than later recipients. I have tried to explain why that is not a bad deal at all in another post.
The only ego and nonsense I see here today is yours.
For anyone who cares, kharris has a grudge against me because he thinks i called him a racist, which is something i never call anyone. Also, perhaps because I needle him when he sets himself up as an authority on manners, while exhibiting none, and on logic… which he must have read a book about, and on grammar which he learned everything there is to know about in the eighth grade. But other than that I often agree with him about substance, when he can find the time for it.
it would have been too much for kharris
to note that i recommended reading Morrissey.
and that i actually provide an argument for believing my view is more fundamental… that is different from claiming to be the authority.
but as for “appeals to authority,” i was raised to be a scientist. appeals to authority are generally not the best science. kharris, having no actual ideas of his own, is forced to rely on authority and the occasional hysterical diatribe he gives us here today.
coberly:
What do you care what kharris says? You appear to rise to the surface to garner the non sequitor crumbs she scatters on the pond’s surface. There is nothing in her comments refuting what you have said . . . so ignore it.
It is a nice piece you have written on SS. I can not dispute what you have said on the topic of SS the same as I would not dispute Bruce. Considering the size and heft of the SS opponents, one almost has to be aggressive in presenting an accurate and consistent argument.
Demographics such as the number of workers the aging of the population, I believe to be the red herrings of the opposition. Much of this is offset by productivity gains and increased wages over the years. Believe i or not as Joel Garreau notes in “300 Million and Counting,” the population is relatvely young in comparison to other countries and mostly because of immigrants having more offspring. Then too why would anyone want to look at more than a 10 year window as things change.
Stck to your guns coberly, the message you and Bruce have put forth is accurate and I support it.
In the long run it is possible .. by assuring they are not born. In the long run history is on the side of them being better off. In the long run people act in a manner to bring this about. In the intermediate run there are lots of ups and downs and there can be no guarantees about the future, only hopes and expectations.
thanks run.
i try not to rise to the bait, but i think there was a duelist in my ancestry somewhere.
Back in 1968 Paul Samuelson thought that economic growth (which I understand to be mostly about increased productivity) could provide the engine that would let SS work with far less than the mathematical 10×40=40×10 that coberly has described. The payroll tax rate has always been less than that simple equation tells us. In 2004, when I started reading what Bruce Webb was writing, the engine was delivering everything Samuelson thought it would, and Bruce was providing a good explanation of why politics was trying to cover it up. I looked at the reports and saw the same.
Today I see that there has been an incredible bubble lasting over a decade. What looked like evidence for the engine Samuelson and Bruce were seeing was not permanent. If Samuelson had looked at the data in 1968, he would have seen that the people managing SS were cutting it too close. It was a little hard to see because in 1968 SS was still only 30 years into the 40+ year startup, but the administrators knew it and said so.
So, I am agreeing that Morrissey has a point. A large part of the reason the rate has been less than required by the simple math of self-provision has eroded over the years. At the same time, extrapolating the trustees report sensitivity analysis (App VI-D) to no change in death rate (no increase in longevity) would indicate longevity is about 3/4 of the 75-year shortfall. There is a good reason to say that we need to pay more because it costs more to live longer.
The simple math does not tell the whole story of what goes on under the hood, but it does a good job of describing the fundamentals.
Thanks Arne.
I’d be glad if you looked at Morrissey’s article and see where she gets the 1/5 from.
I hope it’s clear that I am agreeing that Morrissey has a point. What I am arguing is that it is not safe to go from “there are other factors that mask the “simple math” to “when those other factors weaken, we need to turn Social Security into welfare in order to save the workers from a forty cents per week per year increase in their payroll tax … which they get back with interest.
While I agree with coberly on the fundamentals, there is a lot of room for discussion.
If we were all living longer healthier lives we might actually consider rasing the NRA (Normal Retirement Age). Morrissey has data on this. She shows that the 2 year increase we have already seen already more than makes up for the increase in cost caused by longevity. In addition she provides data (we have seen before) to show that the gains are not even across income levels. Rather than put this idea off the table, I would prefer to let the data decide. I think most people would see that those who want the NRA to be 70 years ASAP are nuts, but might conclude that current projections are consistant with a 1 year increase 40 or 50 years from now. Having agreed on that in principal, they would defer the decision for a decade or two. The result is the same, but the process is different.
I believe that a compromise will come about. It will include tax increases and reductions in the scheduled benefits. It should not be led by an Obama team or it will be short on tax increases. Some benefit decreases are going to be OK. While SS may provide enough to live on, it does not provide enough to retire on. SS recipients need to have retirement savings. As such SS does not need to keep up with general economic growth, (although it is a good goal). Beyond enough for an adequate safety net, we should be able to choose whether to spend it now or save it for retirement (even just another 20 or 30 cents per week each year).
Our ability to continue to grow the safety net has been reduced by the things Morrissey talks about. We need to do something about those. But finding ways to give more power to workers while they are working makes more sense than eliminating the cap. There may be room the change the formula for increasing the cap, but it could be more of a bandaid than a fix.
Many “reformers” would rather see seniors taking a job so they can buy more books rather than stay at home and read books. It makes the whole economy larger and that is an unquestioned good thing. I think these reformers underestimate the value of leisure, but at the same time it is close to an area that needs work. It should be easier for seniors to work shorter hours. It is not the job of SS to make this so, but SS finances would be helped if it were.
Arne
if fifty years from now “most” people are living longer and healthier and want to work for their boss longer, the problem will take care of itself. There is no need at all to anticipate that time.
Meanwhile we are still talking about a projected forty cents per week per year while incomes are going up eight dollars per week per year. It is difficult for me to see what you gain by “compromising” around this… save ten cents per week per year?
You see, I don’t believe the purpose of life is to work for someone else as long as you possibly can. If I can save “enough” of my own money to retire.. and, hell, who knows, start a business of my own, backed by my SS for groceries… why should anyone object?
And of course if you really like working for your boss, no one is going to force you to retire.
You like your work. You make more money working than on SS. Congratulations, you just won the lottery.
But please don’t feel that you have to force everyone else to keep working for their boss, when their knees hurt and they are about to go screaming out of their minds from the stupidity of their jobs.
kharris is right – this post is a joke.
coberly says: I came into the Social Security debate from a background that has nothing to do with politics or “social welfare.” This gives me a different “frame.”
Ha,ha, ha, hoo, he ha. ROTFL.
If the coberly solution tax increase is so small that they “wouldn’t even feel it” the corresponding benefit cut or means test would also be small.
However, coberly is a social security recipient, and would probably be screened out via means test, so these are to be considered “bad faith” arguments.
So is coberly, the avenging angel?
or just the self interested person he not-so-politely accuses everyone else of being?
Sammy not for the first time you have revealed yourself to be an arithmetic cretin.
A gap between projected cost and projected income addressed 15 years or so in advance would if so addressed via increases in taxation on real wage increases a fraction of those actually projected over that same period would, if they allowed benefits to be paid on the original schedule and not subject to a sudden discontinuity would in fact not be perceptible. No discontinuity, no shock.
This would be particularly funny if people on your side were not advocating ‘solutions’ via such things as increases in retirement age and changes in indexing to such things as Chained CPI that would arithmetically amount to the same thing-no actual immediate decrease in benefits at TF depletion, just a comparable decrease when measured against that same baseline. Gee you don’t get a 25% cut in 2033, just a progressive cut starting tomorrow that by the way ends up as more than a 25% cut in 2033.
No one on the ‘reformer’ side has proposed a ‘fix’ that actually delivers a better result in the year after depletion than today. Every single one just phases that cut or more extreme ones in sooner. Just without the discontinuity.
You can address the discontinuity at TF exhaustion via phased in benefit cuts or phased in tax increases, okay fine. But to claim that the discontinuity would not be a discontiuity is just freakishly dumb. Particularly given the ‘bankrupt’ language typically deployed on your side.
Sammy maybe you should take the advice of my own Uncle Sammy: “Pull the other finger”.
Back in 2010 the Economic Policy Institute published a 10 article about Social Security. On of the points was that? “In 1983, 10% of all earnings were above the taxable earnings cap, compared to 16% today, which leaves high earners with a windfall and Social Security with a shortfall. If those earnings were brought back under the cap and taxed about 40% of the Social Security funding shortfall would disappear.”
Coberly, Arne, and Bruce:
A question, what do you consider rich in income? The argument has been to increase the cap from $109,000 would make it welfare and a redistribution of income from the rich in income to the less rich in income. While the cap has migrated upwards due to inflation adjustments (?), $109,000 is hardly rich in income by today’s standards (or even when the AMT came into play to cover some taxpayers who paid no taxes at >$200,000 in income). I would not consider Median Household Income to be a Middle Class Income as the dynamics have appeared to shift upwards for such a designation.
Morrissey does detail what I suspect the are the problems today:
“The bigger problems are weak wage growth and rising earnings inequality, which account for more than half the projected shortfall that has emerged since the system was last restored to long-term balance in 1983. Earnings inequality has eroded Social Security’s taxable earnings because earnings above a cap are exempt from Social Security taxes. Likewise, slower wage growth increases the costs as a share of taxable earnings. Rising health care costs, which create a growing wedge between compensation and taxable wages, a falling birth rate, and higher
disability take-up are also contributing to the projected shortfall.”
– Wages: Morrissey goes on to note taxable earning for have decreased from 42% to 37% and this has come on what segment of the household taxpayers The 97% making <$250,000 annually as a family. Spencer as well as others has also noted the shift in productivity gains from Labor to Capital (Capital sans Labor in many cases). Slow or stagnant wage growth accounts for 51% of the shortfall if Morrissey is correct. Shifting the cap upwards to account for the stagnant wage growth for lower incomes would certainly help and not even touch the rich in income. 47% of the shortfall can br claimed if such a proposal (she says 90% of income) is enacted. – If the ACA stands and Congress goes on to improve it to single payor or ?; there stands to reason much of the issue faced today could go away. Morrissey claims that with the ACA the issue with healthcare is halved. A claim of 7% of the shortfall is claimed. – Is it unreasonsable to increase SS Withoulding taxes 1 tenth of 1% for the next 20 years to account for the expected shortfall? If wages do increase as they did in the past or if the economy increases again and benefits SS; then increases can be forestalled into the future very much along the lines of a 10 year window. – I do not agree with increasing age for SS as this plays against those who do physical labor and others who have a shorter life span. In effect we are disenfranchising them for our own benefit. – I do not agree with the cutting of benefits either as many of us today and those coming behind us have been robbed of what savings we might have had since 2001 in particular and the wealth and income of much of the population has been on a dwnward slope since the late seventies. SS is one of the last bastions of income remaining unscathed by this shift.
Sammy
sorry, but your second graders intuition about arithmetic is wrong. you could even just read the first few pages of the Trustees Report and find those learned gentlemen saying the same thing I do. Only they put it in a way that if not designed to fool the innumerate… like you… and least has succeeded in doing so. They say (roughly) a 25% benefit cut or a 33% tax increase… but that is 33% of a 6% tax… or 2%. Then, in the next 200 pages or so of the Report, they make it clear that that 2% can be reached one half of one tenth of one percent per year for 80 years, and that wages in the meanwhile will be going up over one full percent per year.
i’d say “do the arithmetic” but you have already told us you can’t. you are one of the boys in the back of the class who can’t do the work so they make loud noises and convince themselves that giant burps are actually better than boring old math.
but here is a hint for those of good faith:
that 2% of your wages in a given year is matched by another 2% from your both, so “4% of a years wages”, then if there are “two workers per retiree” or you work two years for every year you will be retired (these are the same thing), the 4% is doubled to “8% of a years wages” for every year in retirement. but your retirement income is only about 40% of your working income, so 8% of 40% becomes one fifth, or about 20%, of your retirement income.
which is why i get so angry when the Big Liars talk about 33% tax increases…as though that is terrible, but cutting a retirement benefit, which is already at survival level, by 20 or 25 % is a “good solution.”
same thinking applied to “just make them work an extra year or two” makes me so angry I turn over the counting tables and scourge the money changers.
run
it has nothing to do with “who is rich.” all i argue is that the “tax” should be paid by those who will get the benefits. you can’t raise the tax on the rich without raising their benefits… so no real advantage to Social Security… or, even if you raised the benefits the fact is that “the rich” CAN get more return on their money than they could get from Social Security, so they don’t see having their tax raised as being commensurate with what they would get out of the deal.
it’s like when you buy fire insurance, you insure for the replacement value of the house. it doesn’t matter whether you have a little bit of money or a lot, you pay a reasonable premium for the amount you expect to get in case of a fire… you don’t pay a lot more just because you happen to have a lot more money than the other guy.
run
it has nothing to do with “who is rich.” all i argue is that the “tax” should be paid by those who will get the benefits. you can’t raise the tax on the rich without raising their benefits… so no real advantage to Social Security… or, even if you raised the benefits the fact is that “the rich” CAN get more return on their money than they could get from Social Security, so they don’t see having their tax raised as being commensurate with what they would get out of the deal.
it’s like when you buy fire insurance, you insure for the replacement value of the house. it doesn’t matter whether you have a little bit of money or a lot, you pay a reasonable premium for the amount you expect to get in case of a fire… you don’t pay a lot more just because you happen to have a lot more money than the other guy.
the other factors Morrissey points at as contributing to the short fall are, as i have argued, factors beyond the control of social security. they are “good times” factors which will not help SS as much during “bad times.” SS was designed to take care of “bad times” out of its own resources.
We have no reason to expect that we will always have “good times.” But as it turns out the cost of the projected “bad times” is so small… forty cents per week per year… that I think it is better to just pay it, than to turn Social SEcurity into welfare in order to keep the “good times” rate of return.
the shift in wages from labor to capital is indeed a problem that we should address. addressing it by turning Social Security into welfare is the wrong way to go. it will destroy Social SEcurity and do nothing about the inequity in wages.
i try to stay away from Medicare. that is a problem more in “our sacred way of doing medicine” in this country. it has nothing to do with Medicare, which is just the sanest we have of paying for those costs.
even if nothing is done to control costs, the rise in costs compared to the projected rise in income would leave us better off AFTER paying for Medicare than we are today. We won’t like paying so much for Medicare, but it’s still the best way to pay for the high cost of medical care.
Alll the fixes proposed for Medicare involve cutting benefits. That’s insane… you expect your medical costs to increase, so you cut your insurance?
Another way to raise money for the Social Security system will be to increase the level at which the FICA stops. A large percentage of people who contribute to the system make very little money, and some number of people who make a really large amount of money, are taxed on a small portion of their income. Republicans will argue that it is class warfare to make the big earners pay for all the improvident, lazy people. But a very large percentage of income earned in the USA is earned by the high earners, and if we consider that it is in the national interest to take care of old people, all of the people should pay for it, and at the same rate.
It would be an even better idea to tax the wealth directly. If every piece of wealth in the United States were added up and taxed at some low rate, like one tenth of one per cent, this would add up to a lot of money. In the past, it would not have been possible to tote up everything, but now we can do this. It would require that wealthy people give up some of their privacy, which middle class people and loower class people do not enjoy in any case. So what?
It would also have the characteristic that wealth based on unlawful income would be taxed. For example, the ability to dispose of toxic stuff (including CO2) should have a value, and that should be taxed according to its value.
but here is a hint for those of good faith:
(good faith will be needed. the subject is not hard, but it is complex enough that it cannot be explained all in one mouthful… and i do make spelling errors.)
that 2% of your wages in a given year is matched by another 2% from your boss, so “4% of a years wages”; then if there are “two workers per retiree” or you work two years for every year you will be retired (these are the same thing–well, they amount to the same thing: Morrissey shows why they are not “exactly” the same thing), the 4% is doubled to “8% of a years wages” for every year in retirement. but your retirement income is only about 40% of your working income, so 8% of 40% becomes one fifth, or about 20%, of your retirement income. so you are talking about… after 80 years, paying an extra 2% of your wages per year, in order to avoid a benefit cut that will reduce your retirement income from 40% of your working-wage to about 30%… in other words from “just barely adequate” to “not enough.”
which is why i get so angry when the Big Liars talk about 33% tax increases…as though that is terrible, but cutting a retirement benefit, which is already at survival level, by 20 or 25 % is a “good solution.”
same thinking applied to “just make them work an extra year or two” makes me so angry I turn over the counting tables and scourge the money changers.To
SS is intended to be insurance. it will pay you “enough” if all else fails. but in order to keep the cost low, it does not pay “more than enough.”
we could change that if it made sense to give up more money today in order to have more money tomorrow. but so far, most people CAN do a little better with private investments than with SS. SS tax is low enough that most people have plenty of money left over to invest. but investments can go bad. so SS is there to literally save your life if your luck fails at a bad time. for the “working poor” there is NO chance they can invest enough to make more than SS will pay them.
if you are not “working poor”, rejoice. but remember that it only takes one accident, or stroke, or illness, or change in the markets… for you to end up desperately needing that SS check.
Sorry to sound like a broken record, but the length of discussion about the supposed Social Security problems of the future bring to my mind again the unreliability of long term economic projections. Of course, you want to take steps to be prepared for different eventualities. However, even if you look at those scary projection graphs that go far into the future, Social Security does not look scary at all. The figures that people are getting all wrapped up in are on the order of rounding errors.
GIGO, GIGO, GIGO!
brooklyn
your heart is in the right place. but you show no sign of having read what i wrote. this is discouraging to me. turning SS into welfare would be a bad idea. for the reasons i have tried to explain. please read them and maybe we can talk.
as for the math. currently SS tax amounts to about 12% of wages which are one third of GDP. I suppose if you taxed ALL of GDP… maybe a good idea for the general budget.. you could reduce the “old age tax’ (no longer Social Security) to about 4%. which is a bit bigger than one tenth of one percent. and all the argy bargy you’d get over that every year would not be worth it. it is better for the workers to “save” enough of their own wages.. in a program protected from inflation and market losses, and insured against various “personal” bad luck… in order to have at least “enough” for a decent retirement at a reasonable age.
the “republicans” want you to do without the insurance and just take your chances on the markets, and die in the street if your luck is bad. the “democrats” want you to just make the rich guy pay for everything. won’t happen and would be bad for you if it did.
i propose what FDR proposed.. a way for workers to save their own money, insured against most of the risks that cash is heir to.
trouble with that is that most “republicans” are too damn dumb to understand that the workers are paying for their own benefits… they think “the government” is paying for it.
and most of the “democrats” either think the “republicans” are right, or they WANT “the government” to pay for it.. which would make the “republicans” right.
You are quite right. 75 years is ridiculous, but at 40 years some clear trends can be reasonably forecast. After all, everyone who will retire in the next 40 years is already alive. The economic growth piece which I estimated at 25 percent and Morrissey estimated at 80 percent has a large cyclical component that makes forecasters look really bad. the reality of the Baby Boom and Baby Bust is not garbage in.
The lack of accuracy of prediction is one of the reasons that Bruce, coberly, and I have also said that the tax increases are needed if we actually follow Intermediate Cost, but should not actually occur if the economy does better than IC. Reporting what is needed with respect to IC is simply a reasonable convention to allow meaningful comparison.
An important take-away of your point is that we should be able to discuss adjusting the formulas without talking about reform.
Min
you are exactly right.
which is why I proposed raising the tax one tenth of one percent when, and only when, the Trustees projected “short term actuarial insolvency.” That means that they think that in ten years the Trust Fund Reserve might fall below one full year’s benefits. Note that one full years benefits, in reserve, would probably pay for ten years of a 10% unemployment recession.
This has proved too hard to explain to people… who mostly won’t listen…. so I have resorted to just calling for the CBO Option 2 or 3, which would raise the tax half of one tenth of one percent per year starting now. It is extremely unlikely this would UNDERshoot the need. And if it overshot the need, it could always be reduced as needed.
But even getting a hearing on this proposal… one proposed by the Congressional Budget Office… has proved impossible, between Peterson’s control of the press, and the “defenders of Social Security” determination to call for turning SS into welfare by making the rich pay for it…
the cheapest and easiest and most fair and sanest “fix” can’t even be heard.
I was already mad at the Peterson Big Liars. the “organized Left” is just pathetically stupid.
“don’t feel that you have to force everyone else to keep working”
I never have understood this straw man. Lack of compromise means you force people to do what you think is best.
I plan to retire early. 20 cents per week for 35 years would be enough to bridge over a year’s worth of medical insurance. But you are right that I have been lucky to be able to put away extra for my retirement for my entire career.
Arne
raising the retirement age will force the poor to keep working, mostly at jobs they hate. if they could not pay for their own retirement, this might be just “the breaks.” but they can, and would if they were allowed to.
that 20 cents per week you are worried about having to pay into Social Security, as the poor pay in their own 20 cents per week, could just as easily come out of the eight extra dollars per week (per year) as you are expected to make. it seems very strange to me that you would begrudge the poor their chance for a year or two of freedom from drudgery before they die in order to save yourself from having to look under the couch cushions for an extra twenty cents every week.
i understand compromise, but saving you twenty cents per week at the cost of making everyone else work an extra year does not strike me as a reasonable compromise.
I have lost the link to the analysis of various proposals, but she has:
“The Social Security actuaries estimate that raising it by one month every two years for generations born after 1960 would offset future gains in life expectancy and reduce the long-run deficit by about a fifth (Reno and Lavery 2009b; Senate Aging Committee 2010)”
So, increasing the limit 1 year every 24 years gets 20 percent. I do not think that is the same as saying that increasing life expectancy is 20 percent of the issue. Looking at the sensitivity analysis again – the difference between IC and LC (just from death rates) is about 1/4 of the shortfall.
I think that it may be calculus. Estimating how much the contribution of life expectancy has changed is not the same as estimating the contribution of life expectancy.
Arne
i know that you are a good guy.. and that my bad manners are hard for you to take.
But I don’t think you realize what working “an extra year” would mean to most workers… physical labor or not… it would be like having “another year added to your sentence.” and when you are near the end of your life… or healthy life… this is incredibly cruel.
what you may also not realize is that your good luck in having a job you like at high pay, with good health, could end suddenly. and when you find yourself at sixty, in pain, hating your work, if you can find any, and looking forward to working another ten years… when an extra forty cents per week each year would have allowed you to take “early retirement” at 62… you will hate yourself and wonder what in the hell you spent that forty cents on… out of an income close to a hundred thousand a year.
even “low end” workers value life enough to prefer to take a little less money in order to have a chance to live even a few years in relative health without having to show up every day to do someone else’s work.
sammy
none of your business but i retired at the age of 52, having “won” the game. i am healthy and have “enough” money, even without Social Security.
what makes me angry at people like you is that i have seen what happens to people who “lose” the game.
it’s not so much that you are ignorant, or even stupid… both of those are fixable… its that you have bad faith. you won’t try to think clearly because you don’t give a damn about other people, and you think your luck will always be good… or it has already been good enough so you don’t have to worry.
and you are too damn dumb to realize that other people are paying for their own Social Security.
you may not have needed yours. you might have been able to “earn more” on your money outside of Social Security. and you may be such a good driver you don’t have to drive the speed limit or stop at red lights like the rest of us.
and for those who think that is a non-sequiter, try to think about it.
i have to go do some work. don’t tell Alan Simpson or Peter Peterson who think that “retirement” means sitting at home watching television…
i should be back in a few hours if anyone still wants to talk to me.
Glad I didn’t piss anybody off with my usual rant.
But I think that the handwriting is on the wall. Next year is very likely to see an attack on Social Security, no matter who wins the White House. The time to prepare for that attack is now.
“raising the retirement age will force the poor to keep working”
“that 20 cents per week you are worried about “
Income inequality is a real issue, but wages for the working poor do increase. The math says they will have gained enough in in 25 years that they can retire (with more buying power) even with the reduced benefits that come from only raising taxes by 20 cents instead of by 40 cents. The same is true for raising the NRA 40 or 50 years from now.
I (if I have to negotiate to save SS) will not force them to keep working, but you (if you can save SS without negotiating) will force them to save for SS even if they would rather save for something else.
coberly:
I would argue these are not natural bad times, these were made to happen through the actions of some of our illustrious presidents and aso one Fed Chief in Particular Greenspan. Here is arather entertaining link: http://michael-hudson.com/2012/05/firing-alan-greenspan/ Increased earnings and payroll wages are very necessary for all of us whether it is SS or not.
Well, that is what you have to say. And again, you resort to the convention, canned tactics of the debating team bully: “If only my worthy opponent had a brain in his head…” Yes, you did recommend reading Morrissy. I said you did, and here you are, focusing on that, rather than anything else I wrote.
Your response is entirely self-fustification. You call your view “fundamental”, which may actually mean something to you, but you are hardly the one to make that call. You assert that you were “raised” as a scientist. Raised, as in potty training or what? Perhaps you were educated as a scientist. I believe the appropriate quote in that case is “with such knowledge, what forgiveness?” You do claim authority to yourself, but when called on it, pretend otherwise.
In case you missed my point, I am condemning you entire policy oevre as riddled with cheap rejection of any view that conflicts with your own, leaps from self-proclaimed knowledge in one area to authority in some other area – all the usual balderdash. Given your response here – a non-response, a resort to name-calling – I can only thank you for offering such a clear demonstration of my point.
Ah, but my point was not to respond to the substance of coberly’s post. Torepeat coberly’s canned response to me, “if you could read”, you have realized that. I was pointing out that coberly is not reliable, and that his opinions should not be accepted as given.
Coberly wants those who’ve read my response to him here to think that a single incident, when he did in fact strongly imply that I am a racist, but then tried to pretend otherwise, is the reason for the treatment I give him. Coberly cannot, of course, know that. To claim knowledge one cannot have, is, well, it’s coberly through and through, but it’s also what is know as “bullshit” among modern philosophers. In fact, the “racism” incident is merely a single example of the very sort of tacit from coberly that I want to bring to light. He stoops to very low behavior, almost reflexively, when challenged. He resorts to claims of his own capacity “I was raised as a scientist…my thoughts are fundamental…” blah, blah. This is “Little Green Footballs” behavior, without the “Little Green Footballs” politics.
Ah, but my point was not to respond to the substance of coberly’s post. Torepeat coberly’s canned response to me, “if you could read”, you have realized that. I was pointing out that coberly is not reliable, and that his opinions should not be accepted as given.
Coberly wants those who’ve read my response to him here to think that a single incident, when he did in fact strongly imply that I am a racist, but then tried to pretend otherwise, is the reason for the treatment I give him. Coberly cannot, of course, know that. To claim knowledge one cannot have, is, well, it’s coberly through and through, but it’s also what is know as “bullshit” among modern philosophers. In fact, the “racism” incident is merely a single example of the very sort of tactic from coberly that I want to bring to light. He stoops to very low behavior, almost reflexively, when challenged. He resorts to claims of his own capacity “I was raised as a scientist…my thoughts are fundamental…” blah, blah. What he needs to do is allow for the possibility that other people are right and he is wrong. In this post, we have him finding out he is wrong, then spinning out an elaborate explanation of why he really isn’t. This is “Little Green Footballs” behavior, without the “Little Green Footballs” politics
kharris
did you notice who started the name calling?
btw
“raised to be a scientist” means here only that i reject “authority” and try to provide evidence and argument… which you do not address.
kharris
run was right. bye now.
Arne
and, pace kharris, i do not know everything, or have time to study everything. i hope i may be forgiven for having taken the Trustees view, as I understood it. What Morrissey offers in her analysis is not analysis, but conclusions, which i have not by any means analyzed myself, but was willing to credit her… because along the way she helped me to understand better than i had, the role of those “other factors” in keeping the SS tax below the rate predicted by my “basic formula.”
meanwhile i assert based on my god given authority as the perfect scientist (just helping kharris read between the lines here a bit) that the fundamental point about Social Security is that we pay for it ourselves, fundamentally according to the “basic formula” but helped out more or less by those “other factors” just the way , oddly enough, “investments” in the market are helped out by those same factors.
Arne
you can change the benefit rate and your argument would be valid… though i would argue that accepting a lower standard of living in the future in return for an inconsequential increase in “spending money” today would be foolish…
but that is very different from raising the retirement age so people who depend on social security can’t retire at all. there is NO HOPE that poor people can “save enough” even with favorable market timing to replace even part of their Social Security.
run
i absolutely agree.
i was a little surprised to learn (as I suppose) from William Greider that the depression of the early 80’s, which i supposed to have been caused by Reagan, was actually caused by the Fed, which took credit for ending it when it changed it’s policies.
then, i think it was Greider, pointed out, that the cost of a recession far, far outweighs the cost of any tax raise…
run
i absolutely agree.
i was a little surprised to learn (as I suppose) from William Greider that the depression of the early 80’s, which i supposed to have been caused by Reagan, was actually caused by the Fed, which took credit for ending it when it changed it’s policies.
then, i think it was Greider, pointed out, that the cost of a recession far, far outweighs the cost of any tax raise…
btw, in case a kharris is still looking for evidence of my megalomania and cheap debating tricks:
my above comment re Greider and the Fed is “loose” “conversational.” I do not claim any authority… except that at the time I had a pretty good idea that the “oil shocks” were not the real problem.
ah, heck, Min, if you don’t piss anybody off you are not really trying.
we have been seeing an attack on SS for the last 12 years, a quite serious attack. but I agree that crunch time may come next year.
i wish I knew how to prepare. i remain convinced that if there was a way to tell the people the can pay for it themselves. less than a dollar a week. and Social Security has nothing at all to do with the deficits, maybe we could laugh these clowns off the stage.
but kharris would be mad at me for hurting their feelings. and he would have no way to know whether “Social Security has nothing at all to do with the deficit” is true or not… not being able to read. Nor would he know if “less than a dollar a week per year” is true or not… not being able to do simple arithmetic.
but gosh, if Bill Clinton and Newt Gingrich agree that raising the retirement age is “the obvious solution” why, then, he’d have it on REAL authority.
for whatever it’s worth, re kharris complaint.
my belief that Social Security should not be turned into welfare is probably “just opinion.”
my statement that the cost of keeping it “worker paid” amounts to 40 cents per week per year increase in the payroll tax.. what the workers save for their own retirement/insurance… is verifiable fact.
my “error” about the relative importance of the increase in life expectancy to this cost… has nothing to do with either the fact of the cost, or my belief, strongly argued, that it is too small a cost to risk turning Social Security into welfare, much less raise the retirement age or cut benefits or impose a means test. but i think you ought to agree with me, not because am an authority, but because i am right.
No one seemed to care much about SS while it was running big surpluses and funding the government.
Now that SS is running deficits (they will for the next 75 years) it is a hot topic. The folks at AB argue that these deficits were always supposed to happen, so we should not change the rules just because cash flow is now negative.
The last few years the deficits at SS have been modest ($50B – 2110 & 2012). They will continue to be “managable” for a few more years. But in 2020 the red ink will be pushing $300B. It will be $1T over the next decade.
Nothing will happen with SS in 2012. In 2013 there are dozens of fiscal/legislative issues that are more urgent than SS, so again no changes at SS.
But in 2014 SS will run a deficit of $100B, and that will force the issue on the table. The deficits will be the issue that makes the elephant in the room visable.
It’s hard to predict where this will end up. I maintain that any increase in taxes is not an option. A plan that raises taxes over an extended period (as advocated by Coberly) is the worst answer. It puts the real burden on workers 20 years from today. It is a “kick the can down the road” plan.
Krasting
once more you push your ignorance about Social Security as though it was revealed wisdom.
The current and near term “deficits” in Social Security were long anticipated. That’s what the Trust Fund was created to pay for. The Trust Fund is predicted to run out of money sometime around 2033… at that time Social Security will return to being fully pay as you go. It will not create ANY deficits whatsoever. Not in “The Budget”: not in it’s own finances.
If the payroll tax is not raised to pay for the longer life expectancy of future recipients, they will just have to get by on a lower benefit than currently “promised.” That benefit would be about 160% of today’s in REAL value. So arguably they will not be worse off. I argue that by raising their own tax a very small amount they will be able to get that larger benefit and they would be wise to do so. Because in that future world where EVERYONE WILL BE BETTER OFF they will want to keep up.
Meanwhile what you are calling “SS will run a deficit of $100B..” is SS spending down its savings. Most people don’t call this a deficit. They call it spending the money they saved for the purposes they saved it for.
As for the “real burden on workers 20 years from today”: first it is no burden. second they will get the money back… that’s the whole point. third it’s not “kick the can.” There is no damn can in the road today. You are looking at a possible rise in the cost of retirement 20 years from now and saying that letting the people who will get the benefit of that retirement should not pay for it.
It is possible to talk yourself into stupidity. It is a lot harder to talk you out of it.
grammatical glitch
(where is kharris when you need one?)
krasting is saying that it’s some kind of crime to ask the people who will get the benefit of a longer and richer retirement to pay for it.
better, he says, to cut their retirement entirely if they can’t afford, or aren’t smart enough, to make money on the bond market.
kharris;
This is the wrong stage for the type of oration on Coberly. I am not just a johnny-come-lately to Angry Bear who is reponding to coberly. I inhabit this forum and I post my own words through Dan. Many times when I see your posts I stop to read them because I expect a quality from you which I do not read elsewhere. You are articulate beyond myself and intelligent. For sure, I have had my own differences with coberly.
You are no racist from what I have read of yours; but, I believe your post to coberly is wrong-headed and non sequitor to the topic. This place thrives on it also.
kharris;
This is the wrong stage for the type of oration on Coberly. I am not some johnny-come-lately to Angry Bear who is responding to coberly. I inhabit this forum and I post my own words through Dan. Many times when I see your posts I stop to read them because I expect a quality from you which I do not read elsewhere. You are articulate beyond myself and intelligent. For sure, I have had my own differences with coberly.
You are no racist from what I have read of yours; but, I believe your post to coberly is wrong-headed and non sequitor to the topic. This place thrives on such replies.
Bruce:
I did not hear you whining about bailing out Wall Street when they were taking positions with CDS and counters with naked CDS or gambling with depositor funds. How many billions did we invest in less than a couple of years? Why is such a bailout sacrosant and not to be violated and the payback of the TF loaned to the gov and paid out in tax breaks to those making >$500,000 no such and cn be terminated. How many trillions were pumped into the economy by the Fed because Wall Street screwed up. And today, we find out JP Morgan Chase is still hedging bank funds. So far the estimate is a couple of $billion with more to come.
And you are whining about paying out to SS . . .
“No one seemed to care much about SS while it was running big surpluses and funding the government.” Bruce Krasting (aka Confabulator In Chief)
Social security was never funding the government beyond being one of the government’s big bond holders. In that same way someone could suggest that China, Japan and Korea are also “funding the government.” Not quite right, but close enough so long as you recognize that that is what all investment strategies require, lending out the surplus capital in order to earn interest income. The Trust Fund, which is the accounting mechanism used to keep track of the surplus, is earning money on the surplus by holding Treasury notes, as required by law. The Social Security Act is one of the more rational legislative efforts that have been accomplished by our elected representatives. Of course those are not the same members of the Congress that we now suffer.
If your concern is that the government has been squandering its money that it has been borrowing from its bond holders, one of which is the Social Security Trust Fund, then tell your elected reps to stop waging wars of adventure and empire, cut the military budget in half or more so and stop funding private industry through a variety of allowances and tax schemes. Don’t be too surprised it your rep. tells you to screw off because his/her first allegiance is to the campaign contributors that put his sorry ass in the Congress to begin with. And no, social programs that have a welfare componenet, like food stamps, are not the cause of the deficit. Social spending is a drop in the Treasury bucket compared with war, the military and corporate welfare.